Accounting MBA Test 2 Attempt 2

Which of the following is an investing activity on the statement of cash flows?

Purchase of long-term investments

What is the impact on the cash flow statement from an increase in short-term notes receivable, assuming the indirect method is used?

A decrease in the cash flow from operating activities

Greer Company purchased land for $256,000. Additional costs include a $15,300 fee to a broker, a survey fee of $2,400, $1,750 to construct a fence, and a legal fee of $8,500. What is the cost of the land?

$282,200

If Lynx Corp. estimates its bad debt to be 1% of net credit sales, what will be the balance in the Allowance for Doubtful Accounts account after the adjustment for bad debts?

$11,000

Router Inc. lends $70,000 on a 120-day, 9% promissory note. The total interest that Router will receive at maturity is:

$2,100

What is the balance of Accounts Receivable at December 31, 2016?

$458,000

On December 1, 2016, Xeon Company bought land and an accompanying warehouse from Yen Company for $800,000. The fair market values of the land and the building at the time of purchase were $700,000 and $300,000, respectively. How much of the purchase price should Xeon Company allocate to the land and how much should be allocated to the building?

$560,000 and $240,000, respectively

The amount of bad debts expense recognized in the 2016 income statement will be:

$595

Pocono Co. purchased a patent at the beginning of 2016 for $490,000. Economic benefits were expected for 7 years, but the patent's legal life was 20 years. Also, during 2016, the company incurred research and development costs of $150,000. Patent amortization expense for 2017 is

$70,000

If the aging approach is sued to estimate bad debts, what amount should be recorded as bad debt expense for 2016?

$8,900

Samsing Inc. pays $18,000 to buy stock in another company and an additional $350 in commissions. Three months later, Samsing sells the stock for $19,000. At the time of sale, Samsing will recognize a:

A $650 gain

On the balance sheet, the cumulative amount of plant and equipment already expensed is reported in an account called:

Accumulated Depreciation

What is the impact on the cash flow statement from a decrease in accounts receivable, assuming the indirect method is used?

An increase in the cash flow from operating activities

If a company uses the allowance method to account for bad debts, when will the company's owners' equity decrease?

At the end of the accounting period when an adjusting entry for bad debts is recording

A company should choose a depreciation method that:

Best allocates the original cost of the asset to the periods benefited by the use of the asset.

Barnhill, Inc. uses straight-line depreciation for its equipment with an estimated useful life of 10 years and zero residual value. The CEO points out that the equipment will last much longer than 10 years, perhaps up to 20 years. What is the impact on earnings per share and net income of depreciating equipment over 20 years rather than 10 years?

Both earnings per share and net income will increase.

Which of the following accounts would not be reported in the Property, Plant, and Equipment section of a balance sheet?

Depreciation Expense - Buildings

Which of the following statements is true regarding dividend income?

Dividend income is reported on the income statement.

Delmont Fire Co. purchased identical equipment having an estimated useful life of ten years. Wind Chime uses the straight-line depreciation method and Fire Hut uses the double-declining balance method of depreciation. Assuming the two entities are similar in all other respects, which of the following statements is correct?

Fire Hut's book value will be less than Wind Chime's book value at the end of year two.

What should a company do to improve its accounts receivable turnover rate?

Give customers credit terms of 2/10, n/30 rather than 1/10, n/30

Which one of the following is not an accurate description of Allowance for Doubtful Accounts?

Income statement account

On January 2, 2016, Hannah Company sold a machine for $1,000 that it had used for several years. The machine cost $12,000, and had accumulated depreciation of $9,000 at the time of sale. What gain or loss will be reported on the income statement for the sale of the machine?

Loss of $2,000

When using the allowance method, what are the effects on the accounting equation when a company writes off a bad debt?

No effect on overall assets or equity.

Which one of the following is not an accurate statement regarding the direct write-off method of accounting for bad debts?

The allowance method for bad debts violates the matching principle, but the direct write-off method does not.

Allowance for Doubtful Accounts represents:

The difference between the gross amount of accounts receivable and the net realizable value of accounts receivable

Which of the following statements is true regarding the two allowance methods used to account for bad debts?

The percentage of accounts receivable approach takes into account the existing balance in the Allowance for Doubtful Accounts account.

Blanket Airlines acquires a new aircraft. It has an estimated life of 15 years and should be used for 15,000 hours of flight. What is the most appropriate method of depreciation to properly match revenues and expenses?

Units-of-production

Current accounting standards indicate that the costs of intangible assets with an indefinite life, such as goodwill, should:

not be amortized.

Depreciation is a process by which:

the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset.

Land is not depreciated because it:

will provide future benefits for a company for an unlimited period of time.